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Don’t stress over balance sheet mistakes, but learn ahead of time how to prevent them.
As a small business owner, you may run into accounting mistakes from time to time. This can happen to anyone, and some of the biggest blunders you may make tend to occur on your business’s balance sheet. If you want to avoid potential balance sheet mistakes, read below to discover the four most common errors you can make, and how you can prevent them.
Omitting Transactions
Of course, one of the biggest balance sheet mistakes is excluding transactions entirely. Fortunately, this is a very fixable mistake. Forgetting to record petty cash, inventory, supplies, or other expenses can throw off the rest of your balance sheet. To prevent this issue, set reminders to record transactions regularly to avoid missing information.
Recording Transactions Incorrectly
Incorrectly recording transactions or inverting numbers on a balance sheet are known as transposition errors. For instance, if you record a 52 instead of a 25, that is a transposition error. Fortunately, this error is easy to catch. To avoid this mistake, double-check any numbers you input into your balance sheet and consider having another employee cross-check your transactions.
Forgetting to Record Any Inventory Changes
Balance sheet mistakes can result from forgetting to record any inventory changes. Some businesses may tend to forget to tally up and update their inventory levels at the end of each period, which can result in later problems. To fix this, you can ensure that your inventory is as up-to-date as possible. By doing so, you can avoid messing up your balance sheet while ensuring that your inventory record is accurate.
Not Classifying Data Correctly
When recording transactions on your balance sheet, you must classify each transaction as either an asset or a liability. Assets are physical or non-physical property that adds value to your business. Liabilities are debts your business owes to other companies, employees, vendors, and so on. Because of their differences, you do not want to confuse assets and liabilities on your balance sheet.
How to Prevent Balance Sheet Mistakes
The best way to prevent significant accounting blunders in your small business is to look out for red flags as they pop up, and fix them as soon as possible. You can help to prevent balance sheet mistakes by doing the following:
- Conduct a trial balance before creating your balance sheet
- Review balance sheet transactions regularly
- Pinpoint problems as soon as possible
- Keep financial documents organized
The best thing you can do to prevent balance sheet problems is to stay organized and be as proactive as possible in keeping detailed financial records.
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Unlike other accounting firms, The Harding Group, located in Annapolis, MD, will never charge you for emails or phone calls and will strive for open communication with our clients. Whether you are interested in business advising, tax preparation, bookkeeping and accounting, payroll services, Training + support for QuickBooks, or retirement planning, we have the expertise and years of experience to help. We serve clients in Annapolis, Anne Arundel County, Baltimore, Severna Park, and Columbia. If you are ready to take the stress out of taxes, contact us online or give us a call at (410) 573-9991 for a free consultation. For more tax tips, follow us on Facebook, Twitter, YouTube, and LinkedIn.